INSIGHTS

CASE BRIEF: M-Kopa LLC Trading v. Commissioner of Domestic Taxes

We explore Tax Appeal 65 of 2023, M-Kopa LLC Trading as M-Kopa Kenya LTD v. Commissioner of Domestic Taxes that was allowed on the basis that since the control of the company was exercised outside the country in 2017, M-Kopa was not a tax resident for that year.

Introduction

Background

M-Kopa LLC, the UK-based parent firm of M-Kopa Kenya  Ltd., appealed against the assessment of the Commissioner of Domestic Tax which suggested that it owed the Kenya Revenue Authority 368,507,926 Kenyan Shillings in unpaid taxes for 2017.

The Commissioner had based the assessment on the presumption that the company was a resident of Kenya for tax purposes during the said year. This is because most of its key management, the Commissioner claimed, comprised of individuals registered as tax residents in the country, thus making Kenya the Place Of Effective Management (POEM).

The Case

M-Kopa argued that its board, which was the decision making body of the company, held several meetings in different foreign countries in 2017. As a consequences, it was those countries, and not Kenya, that were the Places Of Effective Management. M-Kopa could therefore not be regarded as a Kenyan tax resident that year. It also challenged the Commissioner’s inclusion of Withholding tax and Taxes on Grants, in determining the company’s overall tax obligations.

The Commissioner for Domestic Tax, on the other hand, argued that since key members of senior management of the company resided in Kenya, the key decisions of the company were made in the country. The Commissioner contended that the board of directors simply rubber stamped these decisions. It also added that a majority of the Company’s board meetings for previous several years had been held in Kenya, and the company was thus for all intents and purposes,tax resident of Kenya.

Tribunal’s Decision

The tribunal re-affirmed that in order to determine the Place of Effective Management, one should asses the particular jurisdiction within which the management decisions are made. There should also be evidence that the decision makers applied their skills and expertise in arriving at the decisions.

The tribunal added that the residence of a company’s management team was irrelevant provided it can be proven where they made the decisions and that they had the authority to do so. It stated that M-Kopa had proven that its board of directors were, indeed, the authorized decision making arm of the company, and that its board held meetings and made decisions in different jurisdictions outside Kenya in 2017.

The tribunal also determined that the law did not allow the Kenya Revenue Authority to collect taxes on grants, and that the Withholding Tax claimed was not applicable to M-Kopa.

The appeal was allowed on the basis that since the control of the company was exercised outside the country in 2017, M-Kopa was not a tax resident for that year.

Key Insights at a Glance

There is a need to demonstrate who has authority to make the decisions of a company
One requires evidence that the business was not managed or controlled from Kenya.
The Place of Effective Management is the tax residence of an organization regardless of where the individual directors are based.

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